Mr Key said the government was doing what it could to help people in housing difficulty, including spending more on emergency housing.

"The situation where people find themselves living in a car, or living under a bridge or something, there could be a range of reasons, but, at the core of it, that's not the New Zealand we want, and it's not acceptable."

Mr Key said the government's approach, including encouraging community groups to provide housing, would help.

He said the government was also trying to move couples and single people from bigger state houses into single-bedroom homes to help free up three and four-bedroom homes for families.

But Labour finance spokesperson Grant Robertson said if Mr Key was spending any time on the ground he would know there was a long waiting list for social housing.

"There are huge problems with access to emergency housing and the reality of life for those people living in cars and garages is appaling, and the prime minister should be more in touch and know what's going on."

Photo: RNZ / Claire Eastham-Farrelly

Mr Robertson said while the government had put some more money into emergency housing, the real problem remained a serious lack of social housing.

Green Party social housing spokesperson Marama Davidson said she knew plenty of people who were living in garages, sharing bedrooms and sleeping in other people's lounges.

"Because this is their last resort, they've been through all the agencies, they've been to [Work and Income], they've been to Housing New Zealand and they are forced to live in these situations for many months at a time until something is sorted.

"So they've already done what John Key is suggesting that they do, this is how bad the situation is."

Ms Davidson said the high cost and poor condition of rental properties was a major barrier for many people trying to find homes.